T-Mobile likely to end attempt to block Verizon spectrum purchase

Spectrum and cash swap allay T-Mobile's antitrust concerns.

When Verizon Wireless struck a deal to buy new spectrum for $3.6 billion, T-Mobile USA was the first to ask the government to block the sale. Verizon's purchase of airwaves from SpectrumCo, a joint venture of Comcast, Time Warner, and Bright House, raised antitrust concerns because the spectrum was needed more by smaller competitors who would "use it more quickly, more intensively, and more efficiently," T-Mobile said in February.

But this morning, Verizon announced a deal that seems all but certain to end T-Mobile's opposition. The companies will trade spectrum and cash, with the deal being contingent on the approval of Verizon's purchase of licenses from SpectrumCo, Cox, and Leap Wireless.

Verizon and T-Mobile will exchange spectrum in the Advanced Wireless Services (AWS) band, giving both companies "additional spectrum depth in specific markets to meet LTE (Long Term Evolution) capacity needs and enable LTE expansion," Verizon said. There are exchanges of spectrum in numerous markets, with the overall result being "a net transfer of spectrum from Verizon Wireless to T-Mobile and a cash payment from T-Mobile to Verizon Wireless."

"Since this agreement includes spectrum that will be purchased by Verizon Wireless in its transactions with SpectrumCo, Cox, and Leap, this agreement is contingent on the closing of those transactions," Verizon said.

As recently as ten days ago, T-Mobile told the Federal Communications Commission that Verizon's purchase of SpectrumCo airwaves "poses grave competitive concerns." We asked T-Mobile this morning if it will formally drop its opposition to Verizon's spectrum dealings, but haven't heard back yet. We made the same inquiry to Verizon, and a Verizon Wireless spokesperson told us, "That’s a question more appropriate for T-Mobile, but we believe this transaction addresses the concerns T-Mobile raised at the FCC."

The deal with T-Mobile is just the latest in Verizon's strategy to make its purchase seem less like an attempt at spectrum hoarding. In April, Verizon said it would sell some of its older spectrum as long as its purchase of SpectrumCo was approved. Last month, the FCC asked Verizon why it needs new spectrum given that it never deployed cellular services in spectrum the company bought in the Lower 700MHz band. Verizon's response explained that "the Lower 700 MHz A and B bands are not as good a complement to our existing spectrum holdings as is the AWS spectrum that is the subject of this proceeding."

Verizon said complications in the Lower 700MHz band included FCC rules aimed at preventing interference with TV services. Moreover, Verizon said "The Lower 700 MHz band requires an additional duplexer in each device because of the spectral distance between the Upper and Lower 700 MHz bands, and this is particularly challenging because it is more complex to add an additional duplexer that operates below 1 GHz."

The Alliance for Broadband Competition, a group that includes Sprint and was formed to oppose the Verizon/SpectrumCo purchase, today said the Verizon/T-Mobile spectrum swap doesn't change the fact that the original deal is "a far-reaching non-compete agreement between two huge competitors."

"While it's nice that Verizon will cede a small portion of its vast spectrum holdings to T-Mobile, that does nothing to mitigate the fact that Verizon and Cable want to stop competing, stop investing, and stop innovating to the great detriment of consumers and the American economy," the Alliance said in a statement. The Alliance still lists T-Mobile among its members, although it seems unlikely T-Mobile signed off on the statement quoted above.

With T-Mobile on board, Verizon says it is confident of success, saying in its announcement, "The license transfers require FCC approval which is expected later this summer."

UPDATE: T-Mobile has formally withdrawn its objection to the VerizonSpectrumCo transaction. After publication of this article, a T-Mobile spokesperson responded to our inquiry with the following statement: "TodayT-Mobile filed a letter at the FCC formally requesting withdrawal of our Petition to Deny Verizon’s transaction with the cable companies. Together with Verizon, we are also filing our transfer of control applications at the FCC, which is contingent upon approval of the Verizon/cable companiestransaction. Contingent upon regulatory approval of our agreement with Verizon, we believe Verizon’s transaction is in the public interest.”